Most of the roughly 500 leaders who responded to a survey commissioned by the alternative legal services provider Axiom predicted that their workload would continue to outpace their budgets, despite expected increases to their 2027 legal budgets, according to the report.
AI is driving the gap, Axiom said.
The technology is driving up the cost of outside counsel fees, the report said, with nearly 60% of legal leaders saying their outside firms had raised fees while marketing AI as a perk. But in-house leaders have seen few of those savings passed along, according to the report.
Additionally, when businesses ask legal departments to implement AI, the request comes without a dedicated budget 92% of the time, the report said. Instead, the cost gets absorbed by pulling from other budget items.
Axiom's chief legal AI and talent officer Sara Morgan described law departments as "robbing Peter to pay Paul."
"When AI doesn't yet deliver the productivity gains teams were counting on — and at this stage, it often doesn't — many teams still default to calling the law firm," Morgan said in the report. "That default adds cost, tightens the squeeze, and starts the cycle again."
Only 4% of in-house leaders reported seeing a natural reduction in outside counsel fees through fewer hours billed that they connected to the impact of AI on their business, according to the report. Just over 30% said they saw reduced fees from outside firms, where savings from law firms using AI were passed along to them as clients.
The 59% who saw increased firm fees this year, in cases in which firms advertised AI as adding value, marked an increase over last year, when only 30% of leaders made that connection, according to the report.
"We're not yet seeing AI efficiencies flow through from law firm costs," Adrian Goss, vice president of legal and governance at Bauer Media Group, said in the report.
More than 83% of in-house leaders expected their legal budgets to rise in 2027, with none of those surveyed predicting significant cuts. All expected to pay higher compensation for their in-house team, with the majority expecting up to 3% increases and more than a quarter expecting increases of up to 6%.
Small and midsize companies were most likely to expect the impact of AI to accelerate in the next year, according to the report.
However, more than a quarter of the legal leaders surveyed said that AI initiatives at their companies frequently came without any funding, with another 66% reporting that such initiatives were occasionally unfunded. Only 8% said AI initiatives came with a dedicated budget.
"For everyone else, funding is improvised," Axiom said in the report.
More of the AI work is unfunded than a year ago, according to the report. In 2025, 18% of legal leaders reported that AI initiatives were paired with a separate budget.
Jimmy Yun, director and associate counsel at Meta, said the finding that the vast majority of AI initiatives came without a budget wasn't surprising.
"Legal departments are being asked to govern AI, implement AI, and evaluate AI's impact on our outside providers, all from the same budget line that was already stretched," Yun said in the report.
Axiom commissioned InsightDynamo to conduct the survey across six countries. Respondents included 400 general counsel and chief legal officers, and 110 chief financial officers, at companies with at least $250 million in annual revenue, with most of them coming from companies with $1 billion or more in revenue, according to the report.
--Editing by Nicole Bleier and Emily Kokoll.
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